In the face of rockbottom uranium prices, Cameco is indefinitely shutting down its Key Lake mill and McArthur River mines.
Denis O’Hara, 61, has worked for Saskatchewan-based Cameco Corp. in its Key Lake uranium mill for eight years and had hoped to retire there.
Instead, he learned on Wednesday evening that he and about 500 other unionized workers face an uncertain future. In the face of rockbottom uranium prices, Cameco announced that what had been planned in January as a temporary 10-month shut down of its Key Lake mill and McArthur River mine will go on “indefinitely.”
The shutdown comes at a delicate moment in which the uranium market is being hit by conflicting forces. The long-term global outlook for the industry remains positive with 57 new nuclear reactors planned, including 14 expected to come online this year, Cameco chief executive Tim Gitzel told investors on Thursday.
At the same time, an oversupply of uranium has kept prices so low that Gitzel said it’s basically cheaper to buy than produce — and that’s exactly what he said his company will end up doing at times to provide customers with uranium.
“For everyone in the industry, I think it’s a confusing time,” Gitzel told the Financial Post, “and I think that’s led to a bit of a paralysis in the market, where buyers are sitting on the sidelines saying ‘What is going on here?’”
The uranium market is far from simple. Gitzel ticked off a list of factors affecting spot prices for uranium: from trade actions, to suppliers going out of business, to possible U.S. tariffs on uranium exports.
Most analysts date the beginning of problems for the industry to 2011 when a tsunami destroyed the Fukushima nuclear reactor in Japan, leading that country to take other reactors offline, creating a demand imbalance.
Dev Randhawa, chief executive of Fission Uranium Corp., a Canadian exploration company, said that event caused spot prices to crash and sent shockwaves throughout the market.
“It changed the way people bought uranium,” said Randhawa. “Instead of buying it five to 10 years out, they’re doing shorter contracts.”
He predicted Cameco’s decision to indefinitely idle Key Lake and McArthur River operations — which Gitzel said would take 18 million pounds of uranium off the market per year, or about 15 per cent of global supply — may nudge spot prices up.
At around $23 per pound now, Randhawa estimated uranium prices may need to hit $40 per pound to make a difference for Cameco’s operations.
The stock market greeted Cameco’s decision warmly, sending its stock up nearly five per cent on Thursday afternoon to $14.98.
But Gitzel said a rise in spot prices won’t help his company. It needs long term-contracts with customers, and that market remains badly out of whack. He estimated 16 million pounds have been transacted on the long-term market compared with 150 million pounds in a normal year.
“We want to see a return to long-term contracting at reasonable prices,” Gitzel said, referring to a time that Key Lake and McArthur could start up again.
Other than saying he hopes it’s less than a decade, he refused to put a deadline on the matter.
O’Hara, vice-president of the local union, said much of the pricing flies outside his comprehension.
“Anything I would say about the uranium market or the industry is that it’s political.” he said. “Unless you’re sitting in the boardrooms, you would never know what’s going on.”
In addition to members of his union, the catering company that services the idled mining camps — which are operated by workers who are flown in — are also devastated by this. Many come from aboriginal or remote communities where employment prospects are slim, he said.
“They’ll suffer,” said O’Hara.
Overall, Cameco said it expects to permanently lay off 550 employees plus an additional 150 positions from its head office and incur $40 million to $45 million in severance costs in the third quarter.
“After seven-and-a-half years of declining commodity prices, we had to take strong action,” said Gitzel. “And we did.”
Source: Financial Post